Wall Street has largely given up on expectations that the Fed will cut interest rates this year ahead of the first Federal Open Market Committee meeting led by Fed Chairman Kevin Warsh on June 16-17.
According to a Reuters poll conducted June 4-9, 72 out of 102 economists expect the benchmark federal funds rate to remain in the 3.50-3.75% range through the end of 2026.
Opinion polls showed the strongest consensus so far this year that policymakers are unlikely to ease borrowing costs in the coming months.
Confidence has grown following a series of better-than-expected economic data and persistent inflation concerns. Futures markets are moving in the same direction, with interest rate contracts pricing in the possibility of at least one rate hike by the end of 2026, rather than a return to cuts.
Inflation concerns continue to dominate Fed outlook
The latest inflation data, to be released on June 10th, is a key focus for investors ahead of the June policy meeting. According to a Trading Economics forecast cited earlier by crypto.news, headline consumer price index inflation is expected to rise 0.5% month-on-month in May, after rising 0.6% month-on-month in April.
Annual CPI is expected to accelerate from 3.8% to 4.2%, and core CPI excluding food and energy is expected to rise 0.3% month-on-month and 2.9% year-on-year.
The forecasts come as inflation remains above the Federal Reserve’s target. Economists expect upward price pressures to continue, while the Federal Reserve’s preferred inflation measure, the Consumer Expenditures Price Index, hit 3.8% in April, according to a separate Reuters poll.
A new cause for concern has been added to the energy market. Economists cited by Reuters pointed to geopolitical tensions and turmoil in the Middle East’s energy markets as factors behind the continued high inflation. Recent military exchanges between Israel and Iran have raised new concerns about rising commodity prices.
Commenting on the policy outlook, Tom Porcelli, chief economist at Wells Fargo, said it would be difficult for Federal Reserve officials to justify cutting rates under current conditions.
“It will be very difficult for the Fed to justify any action now or in the foreseeable future. It will be very difficult to get a consensus among Fed officials who agree with the idea of cutting rates.”
Porcelli added that the outlook could change if tensions over Iran quickly ease, but there is little evidence pointing in that direction.
Market braces for prolonged high interest rate environment
Expectations for policy tightening are also gaining support from major financial institutions. BNP Paribas last week revised its forecast and said the U.S. Federal Reserve could start raising interest rates in December 2026.
According to a report from crypto.news, the French bank currently expects three rate hikes during 2025, effectively reversing the three rate cuts that took place.
Warsh’s first FOMC meeting comes as President Donald Trump continues to publicly advocate for low interest rates. Still, Warsh suggested monetary policy decisions would remain independent of political pressure.
Philippe Murray, senior U.S. strategist at Rabobank, told Reuters that inflation risks continue to outweigh the need for policy easing.
“The risk lies in more sustained inflation and fewer cuts and rate hikes than any quick fix,” Murray said. “A more optimistic scenario flew out the window.”
Outside of traditional markets, some institutional investors appear to take a different view of short-term macro uncertainty.
sFOX CEO Javier Martinez told crypto.news that financial institutions are accumulating positions and making infrastructure investments while awaiting regulatory developments such as the CLARITY Act.
“From the outside looking in, this moment may look like uncertainty. But inside the institution, this is a window where capital is deployed and infrastructure decisions are made in advance of more mature crypto market structures.”
